True partnerships are vital if PPPs are to work

14 Nov 02
The private sector must be realistic about its potential return from public-private partnerships and must deliver on budget, Office of Government Commerce chief executive Peter Gershon said this week.

15 November 2002

'Otherwise, we are looking at a loveless marriage, not a true partnership,' he told an Institute of Economic Affairs conference on PPPs. 'Suppliers also need to recognise the public sector ethos, and deliver better services than the ones they're contracted to replace.'

The OGC is developing a toolkit on these issues for publication next spring. But Gershon insisted the government was still committed to the process.

The IEA conference took place against a backdrop of growing uncertainty about the financing of the London Tube PPP, and recent controversial comments from Treasury chief economic adviser Ed Balls about the limitations of private sector involvement in the delivery of public services.

Private sector delegates expressed frustration at the high costs of bidding for PFI projects. Tube Lines, one of the consortiums bidding to take over maintenance and upgrading the Underground, has already spent £104m and has been pressing for a guarantee that it will be refunded whether or not the contract is finally signed.

Paris Moayedi, chief executive of consortium member Jarvis, complained: 'Political dogfighting between the government and the London mayor, along with other vested interests, has cost the industry huge sums.'

However, Gershon pointed out that although procurement costs may appear high, 'in the case of LUL, the value of the franchise is enormous. As a percentage, the bidding costs are not unreasonable'.

James Stewart, chief executive of Partnerships UK – itself a 40% Treasury-funded PPP – emphasised that 'it is not possible or economically viable' for the private sector to carry all the risks associated with PPPs.

'It's vital that private partners have enough risk capital,' he told Public Finance. 'But the ultimate responsibility for risk must pass back to the public sector.'

PFnov2002

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